Green Day, IPCC, TNFD and ESG backlash

Talk of the town

March had green economy experts knee-deep in a deluge of reports, announcements and consultations. The latest Intergovernmental Panel Climate Change (IPCC) report warns that we only have a decade left to prevent warming from exceeding 1.5°C. The Taskforce for Nature-related Financial Disclosures (TNFD) cohort released the final beta framework before September’s final recommendations. And our spotlight focus this month: the UK’s ‘green day’ (or ‘energy security day’) saw the release of 44 documents or 2,840 pages, including an updated net zero strategy (mandated by the High Court), the 2023 green finance strategy, and the UK’s energy security plan.

UK

March was due to be a big month for the UK, but perhaps not as big as some had hoped in relation to the highly anticipated ‘green day’. Despite mounting pressure following Chris Skidmore’s net zero review and the US and EU’s clean tech subsidy packages, Jeremy Hunt declared that the UK won’t go “toe-to-toe” with the global subsidy race – instead focusing on transforming the UK’s energy system as a matter of national security.

The UK unveiled its net zero and energy security plans to ‘power up Britain’. Funding and investment was announced for CCUS, floating offshore wind, green hydrogen, nuclear, home insulation support (now rebranded as ECO+), EV charging points, and plans to speed up the planning process to attract investment to build more energy infrastructure. Some welcomed the step up in transparency and others called out where ambitions have gone backwards.

In the Green Finance Strategy, UK companies gained some certainty on the Green Taxonomy with a consultation expected this Autumn. Once finalised, companies can report voluntarily for two years before mandatory reporting kicks in. ‘Interoperability’ will be a focus to ensure the UK’s approach complements other national taxonomies.

The UK’s financial regulator, the FCA, has delayed implementation of initial Sustainability Disclosure Requirements (SDR) after a “significant response” to the recent consultation. We now expect the final Policy Statement in Q3 which will be a close representation of the final rules. Later down the line, the FCA intends to incorporate the work of the International Sustainability Standards Board (ISSB) once adopted, and the SDR could be further enhanced to include the UK Green Taxonomy definitions.

More consultations are coming, with the Government committing to consult on (1) introducing transition plan disclosures for the UK’s largest companies this Autumn/Winter, (2) ESG ratings providers to decide whether ESG ratings providers should be brought into the FCA’s regulatory perimeter, and (3) considering potential policy measures to mitigate carbon leakage risk, including a carbon border adjustment mechanism (CBAM).

Defra published its framework for 'nature markets' to enable private investment (through credits) that will allow businesses to invest with farmers and land or coastal managers to enhance and provide carbon, nature recovery, clean water and other benefits.

Europe

The EU Commission issued €6 billion of EU green bonds.

EU member states approved a regulation that will ban the sale of new petrol and diesel cars from 2035 and promotes e-fuelling network deployment.

France won a marginal victory in its effort to include nuclear power in the EU's new renewable energy rules, much to the disappointment of a bloc of stoutly anti-nuclear countries that includes Germany and Austria. 

Beyond

Following months of mounting backlash against ESG in the US, Biden issued the first veto of his presidency rejecting the Republican-led anti-ESG bill. Republicans say ESG investing practices that take into account issues like climate change unfairly penalise industries such as oil and gas.

The IPCC’s synthesis report found that it’s likely that warming will exceed 1.5°C this century and it’s now “unequivocal” that human influence has warmed the atmosphere, ocean and land. There are, however, some positives in the report. Countries are making more ambitious national commitments, more funding is being realised and low-carbon technology is improving. The IPCC cautions that even if all countries delivered on their current climate commitments, it still won’t be enough to stave off 1.5°C.

TNFD’s full and final beta framework for nature-related opportunity and risk disclosure has now been released – along with draft guidance for affected stakeholders, four sectors (Agriculture & Food; Mining & Metals; Energy; and Financial Institutions) and four biomes. Further sector and biome guidance is due in the coming months. TNFD has adapted the concept of Scopes 1, 2 and 3 in climate reporting for nature as ‘direct’ operations, ‘upstream’, ‘downstream’ and ‘financed’. Aligned with TCFD, the Taskforce has also released draft guidance on the use of scenarios for nature-related issues. A public consultation is now open until 1 June after which the final recommendations will be published in September 2023.